FICO – The First Step to Home Buying
The road to home ownership doesn’t start with getting pre-approved for a loan or with choosing a real estate agent. The quality of your wallet begins the home buying process. Without a reasonable FICO score, buying a house is more difficult and, you could end up renting for another couple of years in Eastchester, New York until your score improves.
The Fair Isaac Company calculates your FICO score on the summary of your complete credit history. The score ranges from 300 to 850, with most people normally having a score of 650. With the change in the economy, however, some borrowers have seen their score drop dramatically after loss of employment, delinquent credit card accounts, or credit card accounts terminated because the card didn’t carry a high balance. Some of the pieces in calculating your FICO score include:
- Credit Inquiries — How many times has your credit history been accessed by someone other than you?
- Types of Credit — Do you have a healthy mix of credit cards and loans?
- Payment History — How many late payments have you made?
- Credit to Debt Ratio — How much do you owe versus your available credit?
When you pull your credit report, you’ll see that you actually have three reports. Experian, Equifax and TransUnion — three of the major credit reporting agencies — use a slightly different models to determine your credit rating. FICO is used by Experian. Equifax’s model is called BEACON and TransUnion uses EMPIRICA. As a result, you have three scores, one for each scoring model.
When you apply for a mortgage or any other loan, lenders want to make sure that extending a loan to you isn’t a problem. Your FICO score gives lenders a view of what type of borrower you are based solely on your credit history. Because of the shift in the economy, most home buyers should have scores in the range of 740 or higher to get an acceptable interest rate. You can get approved for a loan with a lower score, but the interest accrued over time could be more than double the amount of an individual having a superior FICO score.
I’m used to working with all tiers of credit scores. Call me at (914) 337-0210 and I can help you get on the right track to the home of your dreams.
How do you obtain a better score? Improving your FICO score takes time. It can be difficult to make a significant stride change in your FICO score with quick fixes, but your score can improve in a year by monitoring your credit report and by using your credit wisely. The best way to do this is to know your FICO score. You’ll improve your credit score by using these pointers:
- Stay on top of payments. Your FICO score plummets with every account that goes to collections. It’s one of the reasons people who have recently been unemployed see the biggest hit in their credit score. Yes, it takes longer to restore your credit with payment history, but it’s the most reliable way to prove that you’re able to make payments to a lender.
- Correct your credit report. If you find incorrect items on your credit report, write to the bureau requesting that the item be removed. If you have a common name or the same name as a family member, you’ll want to pay extra attention to make sure the activity reported is correct.
- Even out your debt. At first, this doesn’t sound like a good idea. But, you want to avoid of having one card that is maxed out and have your remaining cards at a zero balance. It’s better to have each of your cards at a smaller balance than to have the majority of your debt transferred to one card.
- Store cards and service station cards. For those who have no credit or below average credit, chain store credit cards and gas credit cards are ways to improve credit, increase your credit limits and have a solid payment history, which will raise your FICO score. You must always beware of holding a large balance for more than a couple of billing cycles because these types of cards more than likely have a higher interest rate.
- Keep your cards active. Whether you have older cards, or are just getting started with credit, use your cards so that your accounts maintain an active status. But, make sure you pay them off in one or two payments.
Now that you know more about credit reporting, you’ll be able to successfully take the first steps to homeownership, and that is improving your FICO score. Remember that when you’re ready to apply for a loan to purchase a house, you’ll want to keep your applications within a two-week window to avoid a negative mark on your credit score. With the help of Patricia Forgione’s Realty Network, Inc., the loan application process can be a stress-free experience so you, too, can achieve home ownership.
To learn more, visit www.myFICO.com, Fair Isaac’s informational site and you can review all of your credit reports for free each year at www.annualcreditreport.com. And, for a small payment, you can get your FICO score from each bureau on their websites: www.equifax.com, www.experian.com and www.transunion.com.